tv WSJ at Large With Gerry Baker FOX Business January 6, 2019 8:30pm-9:01pm EST
that will do it for us. thank you for watching. see you next time. ♪ ♪ >> hello and welcome to wall street journal at large. happy new year and may i be the first wish you a successful and prosperous 2020. yes, you heard that right. 2018 ended in a dark cloud of gloom over the financial markets and of the money mavens and professional pundits are to be believed you may want to pull the covers over your head and sleep through 2019. is it all that grim? certainly plenty of reasons to have the bills on hand but finance markets got hammered and
not in a good way. we prepared for the christmas holiday and last month with the worst december for stock since the great depression. in 2018 as a whole equities had their worst year since the financial crisis of 2008. hangover continues not just confined to stock market. in a foretaste of the bipartisanship we can expect of the new washington parts of the federal government started the year shut down following a failure of democrats and president trump to agree on a budget that includes funding for border wall next. we can surely expect the new democratic majority in the house of representatives assembled on thursday to pursue investigative efforts against the team. whether you like that are not it can only add to the uncertainties. and this week the first working day of 2019 we got a real shock from america's most success with comedy when apple sales in last
two months of last year missed its forecast largely thanks to a demand in china. but as friday's jobs members remind us there's a big disconnect between financial markets, fortunes of individual companies even big ones in the us economy as a whole. it's way too soon to write off this year. markets are protectors of what happens to the economy as a whole. is a genius when said stock market is correctly protected nine of the last five recessions and in fact in the last 50 years we had 29 market corrections. periods with equities were down by more than 10% from their recent highs as we have now. in that time we've had only seven recessions. us economy had its best year in a decade and 2018 and despite the concerns in some quarters that all good things must come to an end there's nothing yet to suggest the mental will continue into 2019. the fact job reports on friday
-underscore just how strong the labor market is that it is so strong men and women with years have been discouraged from looking for work or coming back into the labor force in hundreds and thousands. a few signs of the kind of stresses that usually derail an expansion. inflation financial successes negative shock from overseas or at home. it will require deft management by the policymakers in washington to keep the economy moving and perhaps we might lose sleep over. for now, there remains plenty to stay awake for in 2019. to discuss all these issues and to look ahead to what will be a very busy year i'm joined by doug director of the congressional budget office during the georgia leadership initiation and currently president of the american action forum, economic think tank. doug, thank you for joining us. happy new year. >> thank you. happy new year.
gerry: as we started a year that was anticipated in a tremendous gloom and financial uncertainty and worries and start with job report that looks like one of the best, if not single best job reports of this entire tenure expansion. explain the disconnect, what is going on? >> two things going on. stock market has had to adjust to the fact the fed is no longer buying up tons and tons of treasuries and mortgage-backed securities and pumping cash into their that will chase stocks. the reverse is happening. they normalizing interest rates so money is more extensive and downsizing the portfolio and volatility has returned to the market. it's taken adjustment. we've saw equities have been a bit overvalued because of you to cash in that way. underlying process and not a bad thing and hard to live through, i admit but not a bad thing for
the economy as a whole. second piece is a harder piece which is there is turbulence in the policy world. if you think about the medications approach a trade and it shifts seemingly with the president's tactics to catch them unaware and walk out of the g20 summit and they can't agree on what they agreed upon. the market sits and tries to figure out the future and will be the international environment and global growth in the face of that, it is hard. i gets magnified by the fact the fed trying to figure out in the markets trying to figure out what the feds - uncertainty is boiling in the markets. gerry: let's break it down to start with. job support on friday was markedly good password and jobs up and on up limit up but that's because people came into the market force and wages are strong. that point to a strong economy and yet some people say it's a backward looking report and
concerns and signs that the economy is slowing. you see 2019 unfolding? of that momentum continue? >> i think the pessimism about her session is completely misplaced. he cannot get a recession in the united states without having also sector go south. there is no reason for a very strong hustle sector to pull back that sharply. over the final three months of 2018 payroll expanded at a rate of 7% and that the great annual growth rate. a strong foundation for income and we should see continued momentum into 2019. no question. will the economy slow? yes. inevitably it will slow and the question is toward what? 2% or 2.5%? that's the real issue. is not a recession but what will the slowdown look like. gerry: what could go wrong? from the fall we saw a few months ago people's confidence
is headed for a one oh cave get hit, housing market is weak and could that really hit the household sector? >> you can tell stories about it all going on. no question about it. we are weak points in the us economy and housing sector is weak. no question. it's been a concern for quite some time. if you look at ceo and cfo confidence it's come down sharply and talking about scaling back investment. layer on top of that global growth and what we learned but the chinese economy you can tell a story where there's a signalized global downshift and loss of consumer confidence that will cause people to pull back. i don't think that the most weekly sale but you can't let out. gerry: one concern is the fed and they talk to the most notably the fed is overdoing it and raising interest rates last for years seems to be on the path to raise interest rates and
someone once said recessions [inaudible] there killed by the boroughs or so is the fed in danger of overdoing it? >> they are not overdone if it lets talk will be no so far. we are in an economy growing the percent plus or minus in the real federal is zero and there's a way that is overdoing it. nothing the fed has done so far or happen so far should be in question. the issue becomes what the number and pace of the hikes in 2019 and above and that's a fair reason for markets to be uncertain and to try to figure that out but i'm surprised by the lack of confidence in the fed's ability to do that but they've done a minute stop. rapid growth, low inflation. gerry: they seem to back off their steady state of increasing interest rates and market the thinking far fewer rates. what you expect the fed to do this year?
>> i believe the fed has said clearly still be dated dependent but have not said what that is. that's a source of some uncertainty and i think what were going to see the fed do is move twice or three times and it could depend more on what the job support looks like in generate, fabric and march the what the stock market looks like in those months. their conscience of conditions the more conscious of what's going on in major economy and monitoring it closely. gerry: outside the federal reserve with concerns as i said it's not the spirit of bipartisanship and the government shutdown's what to expect out of washington? how much will that impact the economy? >> government shutdown with scenes of our is a partial shutdown and duration even goes per month it will not have a big impact on the economy and stepping back to the larger
picture on policy there was not a lot the president had on the agenda. he did not have a rich legislative agenda that said we have to get this on. essentially nothing. i expect gridlock and a lot of non- policy investigations and efforts and testing in the waters for 220 presidential elections and focus will be on the fed and on the ministrations executive action. immigration moves, trainers, those are the important things. gerry: coming up, we talk more about what is and what is not going on in washington this year and how it might affect the overall economy stay with us. ♪ hey. i heard you're moving into a new apartment. yeah, it's pretty stressful. this music is supposed to relax me, though. ♪ maybe you'd mellow out a bit if you got geico to help you with your renters insurance. oh, geico helps with renters insurance? good to know.
gerry: former congressional budget office is my guest again. one quick question on the fed. i see we saw from powell the fed chairman on friday said he would not resign even if donald trump asked him to. is his position safe? can he be forced to resign? >> to the best of my understanding the president could move him as chairman but cannot remove him as federal reserve itself it will remain a federal board of governors. i would hope and that's not cross the present time. it would be a tremendously bad move and not in his interest.
there appears to be a conscious effort to set him up to be the staple if things don't go well but if the fed better to set the fed up to go well. gerry: attentions between president, administration and federal reserve chairman are not been right. you see that happen in a few times in history. >> absolutely. what's unusual is the public and personal nature of it. that is this present. using his twitter account to publicly attack in a personal way but on policy differences many presidents have had differences with fed chairman. many fed chairman have visited the president in the oval office. often the conduit is a treasury secretary have them pick up a phone or go have lunch. feelings are made known in the fed generally ignores them. gerry: i wonder if ronald reagan had had a twitter account if he would've - >> he was considered the great medicator of his day.
gerry: quickly dana on washington i want to talk deficit and the us is running a huge deficit in about $1 billion in the fiscal year, 5% gdp and i think i'm right in saying never in outside war or recession the federal government has run a deficit that large. used to run the cbo, what is going on there? should we be worried about that? >> i am worried about it. as i tried to the earlier i'm optimistic about the strength of the economy but this is a big concern. us is running chronic large deficits, 5% on gdp on average in the protected next ten years. that is unprecedented and dangerous. runs the risk of private-sector activity and runs the risk of putting trains on the financial system and something that is simply unsustainable. only question is when capital markets hold or pull the rug o out, don't do it.
no confessed that anyone is interested in fixing the problem in washington. but it is one that needs to get addressed. gerry: to be fair, and other factors that go into formulas but government bond yields are at still historically low evidence but no investor strike, people still willing to buy - >> bring back the bond market vigilantes. no, nothing like that but partly because were now genuinely in a global financial system and a big disconnect between the pace of growth in the rest in peace elsewhere and anytime you see us long-term yields go up and money rushes in and pushes them back down so that mechanism by which we get politicians attention seems to be missing right now. it will acquire political leadership in the recognition that if you run such large deficits you will end up having interest payments that are larger than what the us spends a defense department and restrict
the ability of lawmakers to do things they like to do. those are good reasons to get this under control outside of economic warnings. gerry: quickly, final question and answer. what can be done? much of the spending is on fixed an entitlement spending and government controls on an inner basis a small amount of the total budget so what can be done to avoid this looming crisis? >> take back control. these programs, take social security, are crucial aspects of the social safety net and right now they are providing economic instability, no longer solving the income insecurity and creating it. let's have sosa's great program that doesn't copy will benefit by 25% in little over a decade. one that is financially sustainable and doesn't shock beneficiaries and is not pleaded right in. it's something congress needs
to. gerry: all have to copy their printer, thank you. thank you for joining us. up next, what apple sales are telling us about the state of the global economy and financial markets. be right back. ♪ ♪ turn up your swagger game with one a day gummies. one serving... ...once a day... ...with nutrients that support 6 vital functions... ...and one healthy you. that's the power of one a day. it's been a long time since andrew dusted off his dancing shoes. luckily denture breath will be the least of his worries. because he uses polident 4 in 1 cleaning system to kill 99.99% of odor causing bacteria. polident. clean. fresh. and confident.
gerry: as noted, apple sent shockwaves through the financial market on the first business day of the year by cutting its sales forecast. company put into beak iphone demand in china which is seen its economy slowing. is this an apple specific problem or is this a sign of bigger economic trouble brewing? we look at that with the order market may have in store for 2019 with two wall street pros. thank you very much. does the apple shock we saw this week safely broader about the portability of the american companies to weakness overseas? >> it certainly does. it wasn't in isolation. when that report came out we also had read the numbers the airline and american and delta saying there was a slowdown.
we are seeing it in the manufacturing report coming through. you would know it from the employment report that we just received that was strong. the data are softening and no doubt about it. global trade is slowing. again, much of it stems from a weaker china but seen it out of the euro zone is a. gerry: the market more broadly fell on apple news and it came back with strong job report. how do you see it playing out? rough and 22018 with concerns about recession and corporate earnings. how do you see the market now for is the 2019 gets underway? >> first two days will give investors an idea of what they will experience the rest of the year. a lot of volatility and we were lulled to sleep back in 2017,
only eight days in which the s&p rose or fell by 1% or more. yet the average since 1950 was 50 and average sense 2,000 was 70. we are in between those numbers right now and probably going to be elevated volatility in the year ahead. mainly i think because while there is slowing going on the comparisons will be that much tougher. the bar was set very high in 2018 at the beginning of the year earnings estimate were 11.5% and coming to twice that amount. it's hard to get over that hurdle. gerry: we've had a strong year in 2018 perhaps help by the tax cut but there is concern about earnings going forward in 2019. how do you see that plane into markets? >> the economy is different than the market. market is always looking ahead. what is really in my mind important is to establish who is
winning in the start of or in the market. there are those in the market is telling you there is a recession in the often versus those who say there's a difference between a seller market that is moving to slowing. the market can do well in a slow. gerry: to be clear, do you think were headed for a recession and the market has been currently anticipating that? >> i don't know yet but i don't think so. i think we are slowing. slowing is fine. market can cool off and still do quite well. if there is a recession coming the market will have to sell off more. you lose 20 or 30%. but in looking at his revenue growth because topline revenue growth is clearest picture of demand. how many widgets have you sold, how many contracts have been closed and one thing companies do whether small, medium or large is once revenue growth slows down they stop spending and ultimately the goal people.
gerry: a few days into january so what is january traditionally tell us? what should investors look for in this opening month of the year? >> the old saying of as goes january so goes the year but it gives you a good idea as to what will happen for the remainder of the year. january is up since world war ii the market has continued to rise almost 85% of the time. those numbers are confirmed in a pre- election year. whether things will play out this year as well we don't know because we also have explained comfort congress and army. republican president with split congress. we had that eight times since world war two and average performance has been the worst in that scenario as compared with any other government to make a. gerry: one-word answer both of you. up market, appear for the market or down your? >> up. >> up. gerry: good. thank you thank you for joining us. but things do quincy and sam.
just ahead, what will be more at the pharmacy this year. that is next. ♪ -these people, they speak a language we cannot understand. ♪ [ telephone ringing ] -whoa. [ indistinct talking ] -deductible? -definitely speaking insurance. -additional interest on umbrella policy? -can you translate? -damage minimization of civil commotion. -when insurance needs translating, get answers in plain english at progressiveanswers.com. ♪ -he wants you to sign karen's birthday card. it's a high honor.
increase of pharmaceutical prices in the us for 2019. this according to analysis by healthcare software provider rx seating solutions. more than three dozen drugmakers are marking the year by raising prices on hundreds of medicines. leading the pack with 10% for most of their products. that's well above the overall inflation rate but below the increases we saw the past two years. still, washington been taking notice of rising prescription prices. president trump cities were raining them in and proposing a plan record to tell what they charge in television ads. the regrets taken charge in house saying top priority is put a lid on drug cost. how this might be polished with changes in medicare has yet to be determined. as we kick off the new year with divided congress and fears of never-ending gridlock in washington this might be one issue where both sides can find common ground. that is it for us this week. i'll be back next week with more
in-depth interviews right here on wall street journal at large. thank you for joining us. ♪ is >> found in grandpa's attic... >> it was a dirty, dusty old box. and then it's like, "wow. i don't know what it is." >> ...a discovery that will make the baseball world flip. >> you've got honus wagner, ty cobb, cy young, christy mathewson. >> i'm thinking to myself, "oh, my god. i have $1 million sitting in a chair." >> but is it almost too much of a good thing? >> it certainly changes the market in a negative way. >> i'm jamie colby, and today, i'm in northwest ohio, on the